Description

Bottom Line Up Front: I am going to experiment in this write-up by using redline to take accountability for the old writeup while providing some color commentary. Then, I have appended some financials and a Q&A at the back. The less patient or those who read the first writeup are best advised to skip to the end. 

TLDR; Allot's business has finally hit rock bottom, costs are being cut rapidly to achieve profitability, and Verizon, the world's largest carrier by global revenue, is ramping up its security as a service (SECaaS) offering powered by Allot and having success, thus validating a potential $1 billion + opportunity for the tiny Israeli networking company.

 Description:

ALLT is a small cap network visibility and cybersecurity software company headquartered in Israel. ALLT was previously written up by Cobiaman in late 2015 and again by tcc in 2020. TCC's Jan 2020 writeup provided a great overview of Allot's SaaS cybersecurity offering, AllotSecure and the growth math attached to that segment. We will focus our writeup on how ALLT's share price has dislocated dramatically from fundamentals in recent months, creating an extremely asymmetric setup for investors, whereby a nascent but proven SaaS cybersecurity business with a potential future value in the billions can be purchased for a negative implied value today.  STILL TRUE, JUST NOT WHEN WRITTEN!  

A Quick Overview of Allot's Business and Valuation:

• Allot is the technology leader in a niche, modestly growing area of networking software called deep packet inspection ("DPI"). DPI is L7 networking software used to "see inside" each packet of data transmitted over an IP network. As noted by TCC in their writeup, Allot will MAYBE see a growth inflection from 5G network builds as its DPI technology is also uniquely suited to help telecom operators secure their networks against DDOS attacks that are much more difficult to block at 5G throughput and scale. Allot has already won 5G DDOS deals with DISH Networks and two yet to be named tier 1 carriers in APAC. There were once many publicly traded DPI players, including P-cube, Starent, Ellacoya, Sandvine and Procera. All of these players were purchased by private equity or strategics between 2007 and 2017, with Sandvine the freshest transaction comp at ~3x EV / TTM Sales (Sandvine was merged with Procera by Francisco Partners and is currently being marketed for sale or IPO). As the tech leader, Allot has been a share gainer in its DPI business and generated ~$140 million in revenue from this business in 2021, BUT ONLY ~$90 million in 2023. This is a very sticky license / maintenance business with moderate mid-term growth prospects (MAYBE) and on the cusp of the 5G cycle; we value DPI at 2.5x EV/S or $350m ($9.50 / share), with draconian bear market downside to 1.5x EV/S or $210m ($5.80 / share). LET’S BE MORE CONSERVATIVE AND USE 1.5x TROUGH OR ~$135m AND $3.60 PER SHARE TODAY.
• Allot has maintained WASTED a strong balance sheet, with $99m $25m of net cash and equivalents REMAINING ($2.70 $.65 / share). 
• Allot is the leader and category evangelist for the network-based, Telco-delivered consumer and SMB cybersecurity market. STILL TRUE, AND VALIDATED BY MORE TIER 1 WINS AND NON-DNS COMPETITORS DYING ON THE VINE. For a primer on what exactly this product is, the Allot investor day hosted in May of 2021 provides a great overview of the solution and go-to-market strategy (https://investors.allot.com/events/event-details/virtual-analyst-investor-event). Basically, this is a consumer / SMB grade cybersecurity product that requires zero installation and greatly reduces the average user's risk of being phished or taken over by ransomware by blocking such malicious links across mobile and home networks and smart home devices ALSO RUGGEDIZES SMART HOME ROUTERS CAMERAS ETC AND PREVENTS VPN WORKAROUND WITH DNS SOLUTIONS. Allot delivers the network-based security product, which includes a user management app console (for parental control and other features) to the telco operator (eg. Vodafone / DISH / Meo), and the operator then offers it as a white-label under their own brand. Typically there is a 5-10% ARPU surcharge per month billed to subscribers, and based on our and analyst checks, Allot's previous customer cohort data and other market sizing assumptions, the TAM for this solution could be anywhere from $3 billion - $10 billion / year addressable to Allot of high margin SaaS revenue. THIS NOW LOOKS TOO AGGRESSIVE GIVEN RESULTS, BUT THE TAM AT VERIZON ALONE COULD BE IN THE HUNDREDS  OF MILLIONS. Currently Allot has signed AllotSecure deals with 18 28 telco operators, 147 of which have at least partially launched AND 7 THAT WERE CANCELLED FOR BEING UNECONOMIC UNDER REVISED IRR – BASED MODELING IMPLEMENTED POST NEW DIRECTORS JOINING THE BOARD, and is generating ~510 million of SaaS ARR as of its most recent quarter (40100%+ YoY growth rate). Management has guided for $20 - $30 12 – 14 million of ARR in this business by next THIS December. Given the significant growth inflection, we conservatively value the 12/2022 ARR stream at 10x sales or $250m ($7 / share). LET’S NOT TALK STANDALONE SECaaS VALUATION WITH THE STOCK AT $2! Notably, holding the multiple constant to our projection of 12/243 ARR ($3992m) would yield a valuation of $920m 390m ($10.5025 / share). OK I CASE WE JUST DID. 
• While the steady-state DPI business should be capable of achieving CAN ACHIEVE A ~20%+ EBITDA margins POST THE SUBSTANTIAL RESTRUCTURING  THAT HAS BEEN IMPLEMENTED (Sandvine / Procera is currently operating above this level), Allot is running CUTTING ITS WAY TO a slightly negative BREAKEVEN P&L and will run at -10% SLIGHTLY POSITIVE OM in 20232 as tons of capital is being allocated to the virtually pre-revenue cybersecurity business, preventing the stock from screening well to value investors. DISCIPLINE IS BEING BROUGHT TO THE ORGANIZATION BY NEW DIRECTORS.
• The upshot is that Allot's legacy DPI business and net cash are worth ~$12 ARGUABLY $4.00, while the AllotSecure business is worth anywhere from -$2 $7 - $25, implying 1yr / 2yr upside of 110% / 310% respectively. IF SECURE HAS POSITIVE EV, STOCK IS LIKELY WORTH AT LEAST TRIPLE. With nearly $3 $.60 of net cash on the balance sheet and a legacy business that is performing well AT TROUGH….WE WILL ARGUE and boasts historical transaction comps suggesting a value near $10 / share IN OUR DREAMS, fundamental downside from Friday's $8.90 2.20 close is negligible AT LEAST IN SHARE PRICE DOLLARS!. 

Why is the Stock at $2.209?

Obviously, we are arguing there has been a very sharp dislocation in Allot's share price vs. its intrinsic value that begs explanation. Following its well-received analyst day and the award of the DISH Networks 5G DDOS deal, Allot shares traded as high as $21 in June of 2021, but then fell by over 50100% (IT FEELS LIKE) to $2.208.90 as of Friday. Having first invested in the company near $5 in late 2015 (DON’T REMIND ME), we have some decent historical perspective and can provide a relevant timeline:

• 2015 - 2016: Allot developed and commercialized its AllotSecure offering and ultimately won a deal with Vodafone, also its largest DPI customer, however the deal was structured as a license / maintenance contract. During this time, Allot continued to witness revenue declines and market share loss under a struggling management team; following shareholder agitation there was board and mangement refreshment, with Yigal Jacoby Allot's founder coming back to chair the Board (Yigal had been CEO until 2006, overseeing Allot's growth through IPO).    
• 2017: Erez Antebi joined as CEO of Allot and quickly reinvigorated the business and overhauled sales leadership, DPI revenues resumed growth under Antebi from $80m in 2017 reaching $140 million in 2021. Antebi also decided to shift the AllotSecure business model to a SaaS revenue model from license / maintenance, with ALLT to share economics with the carriers, receiving a 25 - 50% split on revenues earned from the service.    
• 2018 - 2021 fundamental performance: Allot won SaaS-based deals with several carriers, including MEO in Portgual (division of Altice), Telefonica for SMB security, Play (leading Poland-based mobile operator), Numericable (leading French T1 cable operator), and others that have been announced but not yet named. Vodafone's AllotSecure offering became a wild success, growing to ~$200m / year in high margin revenues for the carrier and achieving 40%+ penetration rates in certain markets, which made management highly enthused about its prospects with newly signed deals. However, the SaaS-based deals with other carriers generally ended up taking longer to sign, commercialize, and ramp-up than expected due to this being a new service and operators taking different approaches with different urgency in different markets. Allot ended up having to recalibrate certain aspects of its sales support and marketing strategy along the way to adjust to new data. Bookings and operator signings were very strong, but revenue generation consistently lagged behind expectations by about 21 years vs. what management expected.
• 2018 - 2021 performance versus street: After returning the DPI business to growth, Antebi established a beat and raise cadence and built strong credibility with investors from 2017 - 2020. However, with limited data to guide off of for the AllotSecure SaaS product, management DELIVERED SOME BIG WINS LIKE VERIZON, ROGERS AND VODAFONE BUT overachieved on bookings (as measured by Allot's "Maximum Achievable Revenue" or MAR metric which is basically ARPU x subs x Allot's percentage split with the carrier) but underachieved on revenue generation as operators pursued incremental launches and suboptimal marketing tactics as opposed to following Vodafone and Allot's "best practices" manual. THEY CHASED SOME DEALS WHERE OPERATORS HAD NO SKIN IN THE GAME AND LUKEWARM COMMITMENTS FROM SENIOR MANAGEMENT, AND THESE DID NOT GO WELL.  Management and the Board's background running established product cycle driven businesses rather than incrementally scaled startup SaaS offerings led them to calibrate expectations around "top down" MAR math rather than observable bottoms up behavior at the newly signed customers. In 2019, Allot expected $5m of AllotSecure revenue in 2020 and $20m in 2021 (actuals, $2m / $5m). Later, management guided to $6 - $7 million for 2021 and $25 million+ for 2022. Throughout 2021, Allot consistently trickled down its '21 guide (to ~6m, to $5-6m and finally to $4-5m) while keeping the $25m+ 2022 bogey until its Q3 earnings call, when they finally reset this number to $10 - $15m (and $25 - $30m ARR exiting 2022 WHICH ACTUALLY CAME IN AT ONLY $7m / $9). Obviously, this type of street management is exactly what investors hate to see and 2021 was a painful year AND 2022 AND 2023 WERE ROOT CANALS to be invested as momentum in new business wins was totally eclipsed by the slow-motion train wreck of misses on the SaaS revenue metric AND IMPLOSION OF ALLOT SMART / DPI PRODUCT REVENUES.

Why Now is the Time to Own the Stock

In addition to Allot's extremely compelling valuation, we believe management appropriately reset expectations on the Q23 2023 earnings call which has created a favorable setup for outperformance on the critical SaaS revenue MOST metrics in 20242. Here are some of the reasons we expect Allot to outperform and trade to fair value A REAL PRICE in 20242:

• Investors have better visibility: Allot listened to large shareholders and began disclosing quarterly SaaS revenue and ARR starting with its Q3 report, and plans to do so going forward. This gives investors a relevant way to track and model the progress of the business and appropriately value it. WE NOW ALSO HAVE SOME KEY RECENT LAUNCHES THAT ARE GOING WELL INCLUDING FAREASTONE AND VERIZON AND CAN TRACK ADOPTION / SUBS / REVENUE AT THESE CUSTOMERS.   
• Management has better information and are better forecasters: Rather than trying to apply top-down projections based off of old Vodafone data, management is now armed with more relevant information from a larger sample size, and has calibrated guidance conservatively to account for the new behavior they are witnessing (operators taking longer to scale the offering). We think they are in a strong position to exceed lowered expectations for 20242 as a result. THE OLD MODEL THEY WERE USING WAS HOPE-BASED, NOW THEY ARE USING A GRANULAR BOTTOMS UP BUILD WITH DISCIPLINED ASSUMPTIONS.  
• Improved sales and marketing coordination increases likelihood of success at new and existing customers: Allot has tasked a new overlay marketing team (hired in mid 2021) with sales support following deal signing to help operators develop optimal go-to-market approaches. Salespeople are also being compensated on residuals tied to revenue generation rather than simple MAR-based bookings compensation. For a management team and Board with prior SaaS experience, this would have been a no brainer but Allot was learning the game a bit. At this point, we think they are in a good spot to help improve performance at some of the subpar AllotSecure launches and execute well on the new ones. PLUS THEY ARE CHARGING MINIMUM MONTHLY FEES AT NEW CARRIERS OTHER THAN HUGE T1s; THESE FEES ALLOW ALLOT TO EARN A RETURN EVEN IF THE PROJECT DOESN’T SCALE, IT JUST HAS TO LAUNCH (AND THIS EARNOUT MECHANISM INCENTIVZES OPERATORS TO PUSH THE PRODUCT HARD OUT THE GATES) 
• Very large deals are in play at name brand global and US carriers, and we think Allot stands to win at least one of the US majors in 2022. WE WERE RIGHT! If Allot wins Verizon for consumer cybersecurity as we expect they can (AND THEY DID, WELL THEY WON THE WHOLE GROUP BUT ONLY ROLLING OUT TO FIXED WIRELESS ACCESS SMB AT FIRST), it will be a huge endorsement of the technology and Allot's market positioning and also very financially meaningful (potentially a $100m revenue opportunity for Allot). WE ACTUALLY THINK THE TAM AT VERIZON IS BIGGER THAN PRIOR ASSUMPTIONS, BECAUSE VERIZON IS PRICING IT AT A PREMIUM $10 - $20 / MO AND MANAGEMENT HAS CONFIRMED 1) LAUNCH IS GOING WELL AND EXCEEDING EXPECTATIONS AND 2) NO ECONOMIC "CAP” IS BUILT INTO THE DEAL.
• AllotSecure is highly extensible, meaning further value added features (robocall blocking AND CYBER BULLYING PROTECTION, ETC) can be incorporated into the product over time, increasing its value proposition to carriers and supporting pricing power. We expect announcements on this front over the course of 2023 AND BEYOND2.

Projections (OLD):           

Management assumes that penetration rates of ~25% of MAR are achievable in the long-term; our model assumes Allot reaches 12% deployment of cumulative MAR bookings by 2024E on an ARR basis. 2022 will be a tough year for operating leverage as management plans to invest to drive adoption at existing carriers, develop new products and cement large deal signings while DPI / 5G revenues are likely quite stagnant until true 5G deployments accelerate in late 2022 / 2023. We are above guidance for 2022 revenues, hence investors should expect initial 2022 guide to look more like street (operating losses roughly 7m worse than ours). 

Obviously, there is massive upside potential if the AllotSecure ramp ultimately manifests. Our checks have found no reasons yet why it should not. STILL TRUE.

The main risks are competitive as this is a rapidly changing industry, however operators are likely to be very sticky once the business is awarded, thus VERIZON’S DCF ALONE Allot's existing ~$500m of MAR bookings and 18 signed deals have intrinsic value that could COULD exceed the current market cap. We believe Allot has the best offering for carriers, with Infoblox (BLOX, license software company acquired by Thoma Bravo at 3.5x sales in 2016) and Akamai (AKAM, CDN and DNS security company) offering lower-end DNS solutions THAT ALLOT ALSO OFFERS AND HAS WON BUSINESS WITH IN LOWER ARPU MARKETS THAT REQUIRE A <$1.00 / USER / MONTH PRICE POINT. 

Another risk is that the DPI / 5G business rolls over AT LEAST WE SAID IT!. Allot has overachieved in this business and Sandvine / Procera is likely to be competing more aggressively during its BUSTED BECAUSE THEY WANTED DOUBLE DIGIT EBITDA MULTIPLE ON SHRINKING REVENUE sales process / IPO process, so it is possible revenue here could stagnate or even decline modestly in any given year. However, we are confident in Allot's market leading position and particularly in 5G DDOS where Sandvine does not play, so at some point that business has growth prospects and will continue to provide downside support to the share price. STILL TRUE.

We see a path to a $240+ stock in 2 years time and further compounding potential thereafter. Strategic interest in the asset (likely in the mid-teens MID SINGLE DIGITS as a starting point) is a further margin of safety.  

New Content:

We thought it would be helpful to host a fireside chat with Thor25 before he retires to herd alpacas and hunt for Peruvian artifacts and tapestries in the Andes, which would clearly be a better use of time for him than stock picking:

Thor, when you have been so wrong, why are you confident Allot Smart / DPI won’t keep declining and isn’t a secularly shrinking business?

A: Of course, our confidence is lower having been so repeatedly wrong. But DPI has been through cycles before, notably around the original 4G LTE core network build out in the 2012 – 2014 timeframe and then with some very large policy enforcement deals and 5G DDoS deals in 2019 – 2021. Allot continues to win large deals, poaching Rogers from Sandvine over the last year, though we believe this deal did include a large one-time discount on the initial lumpy order which is causing Q3 gross margin to be only 50%. The existing DPI installed base is still a source of cash flow and periodic upgrades. In some areas, like enterprise (~$20m of revenue annually), there is likely a secular decline driven by migration to the cloud from on prem. But for large carriers and government agencies that constitute the vast majority of the business, there should be periodic large deals activity. Developing markets in APAC and Africa also continue to invest both in DPI and in digital enforcement, and digital enforcement is also winning deals in developed markets. Dedicated DPI companies are amazingly good at doing this stuff at massive scale and low latency, which is why the business has had shelf life.  

5G DDoS remains a big opportunity when 5G native cores get more fully deployed. This could happen in the next few years and drive a large upcycle in the SMART business. Carrier DDoS is a $500 million market annually and at 5G, we believe Allot has the best solution as evidenced by the DISH and Rakuten wins.

Model:

The model above shows SMART / DPI product revenue has averaged around $66 million over the past ten years, while service and maintenance revenues have grown from the mid $30 millions to $50 million. $42 million in 2023 is a definite outlier to the downside. Our projections over two years call for a recovery to $60 million and $50 million, respectively, putting consolidated SMART revenues essentially in-line with the 10-year average (but up 20%+ from the anemic 2023 result). It’s out of line with the recent trend but feels reasonable, particularly when taking into account the potential for growth in DDoS to offset product revenue weakness in DPI.

Thor, how could management have bungled both expectations and operations so badly? Does the Board have any idea what it is doing?                              

 Allot went all-in on SECaaS based on essentially one case study in Vodafone. Their founder is an entrepreneur and is still chairman of the Board. There was probably some hubris behind the decision to staff up so aggressively, and to land grab with little regard to disciplined modeling assumptions. They should have added directors with experience in cybersecurity and SaaS much sooner, but resisted doing so. We have heard that on two occasions Allot shot down takeover offers to remain independent including one in the $20s; the legacy Board probably has felt lots of pressure to validate that decision which can incentivize home run swinging.

With that said, since our write-up the Board has added three directors, including two appointed by shareholders (one of them being the CIO of the largest shareholder), and two that have relevant operational and cybersecurity backgrounds. We believe these directors have helped, most recently in pushing for cost discipline that manifested in a $15 million cost reduction plan announced alongside Q2 earnings. Management and the Board have also greatly refined the strategy for SECaaS and have landed on some logical solves, including charging monthly minimums for most new SECaaS customers and focusing resources on large customers with meaningful TAMs rather than smaller ones, in addition to building models on a bottoms up basis and setting the cost structure to a downside rather than base or bull scenario.

There was also clearly some bad program management and balance sheet risk management going on at Allot, as evidenced by the $14 million write-down of AR with African resellers (which management still believes they will collect, just not timely) and the 50% gross margin in Q3 – although to be fair, that was a unique situation involving a large competitive displacement.

Where does your comfort on SECaaS growth in 2024 and 2025 come from?

Above is a simplified model of Allot’s Verizon revenues. This model assumes Allot takes a 20% revenue share (low end of 20 – 50% range) and that Verizon’s blended ARPU for the Fixed Wireless Access service is $13, at the low-end of the $10 base and $20 price points per user per month. At Telefonica in Spain, Allot has shown cohort graphs that show a 50% penetration rate of SECaaS within the installed base after a couple of years. We assume the Verizon FWA product achieves between a 30 – 70% penetration rate of new FWA subscribers, growing over time and with Q4 peaks given sales pushes into year-end. By Q4 2025E we have penetration at 32%, which feels reasonable. Verizon supports about half of the SECaaS growth we assume in 2024 and 2025.

Notably, we are not assuming expansion of the Verizon sales effort into other markets (100 million consumer mobile subscribers, or the broader base of 29 million Verizon business subscribers, for example). These numbers are supportable, we believe, with Verizon FWA alone, and Verizon FWA is a single digit percentage of the total Verizon addressable market for Allot. Expansion to the rest of the network would be a massive incremental driver, but isn't necessary for very material upside to the equity. 

Allot has also had a very successful launch at Taiwanese carrier FarEastTone (8.5m subscribers, ~$1.50 ARPU for the SECaaS product) in late 2022. While we are not showing our entire carrier by carrier model, FET also accounts for a fair amount of assumed growth in 2024 and 2025. In fact, almost all of the SECaaS growth in 2024 comes from FET and Verizon. By 2025, we assume some of the other large deals Allot has won including multiple unnamed Tier-1s (we believe cable operator SFR and Italian mobile carrier Wind are among these), Vodafone for Home Secure as a revenue share, and Singtel for SMB security, will be deployed and contributing to revenues as well, but we do not assume the levels of success seen by Verizon and FET to date.

Why are you so confident Verizon and FET are, in fact, going well?

FET has publicly talked up the Allot driven offering (which they call anti-terror guard, you can google and find articles in Chinese) and disclosed 2.5% penetration of the base within a few months, and received an award from Allot for their success https://www.allot.com/corporate/media-center/press-releases/allot-presents-an-award-to-taiwans-far-eastone-telecommunications-for-cybersecurity-leadership/

Verizon – Launched June 27th PR'd by Verizon first then Allot on the earnings call https://www.verizon.com/about/news/verizon-business-new-management-portal-security-solutions. Management has said Verizon is performing well and that they are looking at expanding the scope of the go to deal into other market segments besides new FWA subscribers. If you speak to management, they will confirm that subscribers are trending better than Verizon’s expectations (which obviously bodes well for SECaaS revenues in future quarters, though we don’t know what VZ’s expectations were).   

What supports your lower Opex assumptions?

Allot announced a $15 million cost reduction program on Q2 earnings, that will flow through primarily in Q4 23 and Q1 24. Applying this to the run rate of Q2 NG opex yields a mid to upper $70 million run rate PF for the restructuring. 

Why wouldn’t the Board just put the Company up for sale and end the misery?

With the SMART / DPI business at a likely trough, ahead of harvesting the fruits of the SECaaS investments via results at Verizon, FET and others, and before the operational restructuring yields profitability and cash flow, it would likely not make any sense to sell the Company for a single digit price. With that said, along with its preannouncement of Q2 results in July, Allot also announced that an “executive committee” of the Board had been formed, which we believe to consist of the three new directors. We believe this committee has been exploring ways to enhance shareholder value, including by cutting costs, but also likely through the exploration of a partial / full company sale. There are several potential acquirers that may have looked or continue to look, including Sandvine, Radware, Checkpoint and F5, and the business would be a good fit for tech focused PE too. Two activist shareholders owning, combined, more than 30% of Allot’s shares outstanding could make a near-term sale less likely and a long-term sale more likely when the business has inflected and shares are fairly valued.

What are some potential catalysts from here?

If Allot reiterates its guidance for 2023 and confirms it expects to be breakeven / profitable in 2024 on the Q3 call in November, shares will have likely put in a bottom. Between now and then, any announcements of new large DPI or SECaaS deals won will be helpful, but not game changing. The exception would be news of an expansion to address more customers at Verizon; that would be a gamechanger.

A strategic could also go hostile after being, possibly, rebuffed numerous times. However, with a very difficult path to success given the shareholder base and Board and headline aversion by strategics it is not likely.

What are the blind spots in this writeup?

We don’t know the exact percentage revenue share that Allot gets at Verizon, FET, or any other carrier. Historically, management has given this as a 20% - 50% range, and they have stood by this in calls with investors in recent months, while guiding that deals with minimum guarantees or large carriers could be at the low end. It’s possible that, for example, Verizon agreed to pay $1 / month per sub to Allot and ALLT agreed because they thought the VZ price point would be $5 / month instead of $10 or $20. That reduce our VZ FWA revenue assumptions by 60%. This is just speculation though to be clear, and for now we think it’s more likely that the deal is still percentage of revenue based and in the range we put forth.

The second most exciting deal we had tracked and confirmed as a win was Rogers, and Rogers decided not to launch, causing ALLT to reset its SECaaS numbers for this year. That was a blow we didn’t see coming, particularly so because we believed the launch was imminent. Allot has said this is due to Rogers’ widely publicized hack-driven service outage last year, which makes sense – after all, charging for a cybersecurity product when Rogers itself was hacked probably struck executives in marketing and PR as awkward, at least for now. We have no reason to think that Rogers backed off the launch for any reason to do with the service, but if that were the case, it would be a big negative as to future T1 wins or deployment prospects at Rogers.

DPI could actually be a buggy whip and worth only run-off cash flows (which might still be worth more than the market cap). Our checks, including with large strategics in the space, don’t suggest it is. We also don’t think anybody smart would be willing to take out Allot if DPI were seriously impaired, and we believe there are multiple suitors interested in doing so.

Vodafone might not launch HomeSecure ever with Allot. Our checks confirmed the win in early 2022 ahead of Allot’s announcing of it in August, and these individuals continue to think it will launch and be meaningful, but it might never make it out of the lab. It’s not in our 2024 numbers and only minimally in our 2025, but if Vodafone didn’t launch similarly to with Rogers, the question would be why not and will this product scale with T1s outside of Verizon and FET?

The 20-F probably has a disclosure about geopolitical instability and risks in the Middle East. Those have been front and center on the political front this year. Allot needs motivated engineers and salespeople to run the business, and if they all want to move out of Israel or spend all their time protesting it would be a negative.

There could be another miss to Q4, in fact, we think Q4 gross margin likely could miss as more of the Rogers order ships in Q4. Maybe pencil 60% – 65% vs. the 70% historical average that Allot has talked about for 2024. But, there could also be a beat to top line – mean reversion both taketh and giveth.

Good luck to any and all that listen to me – you are going to need it!

Catalyst

Q3 earnings report confirms pickup from FET and Verizon and SECaaS accelerates. DPI stops imploding, let alone rebounds. Verizon expands the deal and opens up a $1 billion type opportunity.